Pain was the dominant motif of our public discourse in 2002. The Oakland homicide rate, several spectacular corporate flameouts, a state budget surplus that plunged $34.8 billion into the red — across the Bay Area, people began to reconcile themselves to the notion that yes, we too can know the Rust Belt’s anxiety.
It started slowly, as 2001’s economic doldrums proved more tenacious than anticipated. Enron filed the largest bankruptcy in history, but since no one could figure out what the company actually did, we all figured no harm, no foul. Then the bedrock industries began to suffer. Arthur Andersen ceased to exist for all practical purposes. Ford Motor shed thousands of employees, and Kmart and United Airlines went bust. Top that off with rising crime and memories of the energy crisis, and it started to feel like the 1970s.
But where are the Allentowns and Flint, Michigans of our era? Houston and Jackson, Mississippi may have been hollowed out by the Enron and Worldcom supernovae, but neither emerged as national metaphors. We were the national metaphor. Bay Area tech companies slashed their workforces, our dot-com frauds continued to be exposed as such, the Gap hemorrhaged money — even Charles Schwab took a beating. The Port of Oakland shut down over a bitter labor dispute, costing the West Coast’s economy untold billions. One utter schmuck of a referee singlehandedly kept the Raiders out of the Super Bowl, and law school deans were allegedly diddling their unconscious students. Even the HP way — the famously humanistic workplace culture that stressed dignity and initiative — fell under the long knives of corporate consolidation. The Bay Area seemed to feel like everything wrong with America in 2002.
Oh, cry me a river. You want to see a real recession? Take a look a 1982 — that was a recession. When it comes to economic cycles, the media feeds on hype. It overplayed the boom years, and now it’s overplaying the hard times. The truth is that while the East Coast media loves to write and rewrite Silicon Valley’s obituary, the Bay Area is not Detroit and never will be. With two national laboratories, two research universities, a cluster of dynamic ideopolises, and a regional imperative to import every kind of technical and creative talent from across the globe, Northern California always has remade itself just in time to kick-start the next wave of irrational exuberance. And this year, thanks to a strikingly diversified economy, the East Bay is actually better off than the company towns of Hewlett-Packard and Cisco. Sure, we may have sipped the high-tech Kool-Aid, but we didn’t chug it down, and the numbers reflect our prudence.
It’s not sexy, but it’s true — the professional infotech class the defines the Bay Area is alive and well, just not in the mood to blow a wad on Pilates classes. All the fretting we did about our second-gear economy was sheer luxury, a pastime for a generation that’s never known real pain. If the Bay Area is a symbol, it’s the symbol of a country that loved the Internet not wisely but too well, a country that feels a little jumpy about its job security, foolishly disregards the prospects of long-term debt and the shrinking middle class, and doesn’t want to think about health care and Social Security. But we still know how to make a buck when the time is right.
The real worries will begin in the next few months, when the state’s budget crisis hits home, and the armies of impoverished, uneducated welfare moms and janitors watch the last tendrils of the safety net unravel. Because Sacramento and the counties can’t tax stable assets like property — and is there anyone left in California who doesn’t understand the enduring idiocy of Proposition 13? — government revenue depends on one factor alone: the health of the economy, specifically the rich. And because the rich have taken a comparatively worse beating than the middle class, our state is broke. So while the chattering classes lost sleep over the mildest recession in decades, the people who depend on the government for basics such as food stamps and health care prepared to fall off a cliff.
This is the real story of 2002. And next year, the lumpen poor of the East Bay — the ghetto underclass to whom we never bothered to impart the skills or education to participate in the tech boom — will be worse off than they’ve been since the heyday of crack.People who fret about the local economy simply don’t remember when the Bay Area really had something to gripe about, gripes Doug Henton, an economist who studies the financial and social health of the Bay Area for Joint Venture Silicon Valley. Sure, the Bay Area lost 100,000 jobs over the last two years. But when you consider that in the two years prior we added 100,000 jobs in a binge of overinvestment, that puts us back in 1998, which ain’t so bad.
“This concept that suddenly everyone’s feeling pain, that’s relative to what?” Henton says. “The 1900s, when everyone was working on farms? What’s changed is September 11 and the sense of security that was lost. There was this idea in the late 1990s that every problem has been solved — why would anyone think that? We had a bubble, and it broke. Now we’re back where we were. But by any other indicator, we’re much better off than we were in the early ’90s, for example. We have the highest real wages of any region in the country, the highest productivity, the best climate, and the best assets. Everyone wants to live in the Bay Area. Why are we in this doom-and-gloom attitude? Nothing has changed that much.”
In fact, Henton claims, history shows that the Bay Area emerges from every boom-and-bust cycle stronger than before, and it’s all thanks to the region’s uncanny penchant for innovation. The Bay Area developed the semiconductor in the ’70s, rolled out the personal computer in the ’80s, and popularized the Internet in the ’90s. Today, it’s head and shoulders ahead of the rest of the nation in biotechnology, and sometime in the next few years, reagents and patented proteins will push us back in the black in a big way. We’re not without our problems; our housing shortage and transportation mess threaten to limit our growth and may even force local innovators to migrate to the dozens of other regions bent on building their own biotech corridors. And the imminent war in Iraq, coupled with George W. Bush’s trickle-down impulses and the looming peril of deflation, could still stall the economy. But somewhere in the labs of Walnut Creek’s Joint Genome Institute or Albany’s Plant Gene Expression Center, eggheads are even now thinking us out of the mild economic climate we’re so preoccupied with. “It’s the low points where innovation has occurred,” Henton says. “Someone is thinking something up and inventing whole industries right now.”
Who’da thunk that of all the counties in the Bay Area economic powerhouse, it’s the East Bay that leads the pack? According to officials with the state Employment Development Department, the counties of Alameda and Contra Costa whittled the unemployment rate down to 5.9 percent in November, while Santa Clara’s is pushing 7.8 percent. Although we’ve taken a big hit in business services in the last two years — think Web consultants, e-commerce hucksters, and marketing professionals — we made up for this loss with health and other service jobs as well as the continuing real estate boom. Manufacturing lost a hefty share of jobs this year, mostly in electronics, but Alameda County’s food processing sector — perhaps its largest industry — remains sound. In short, the East Bay’s economic diversity cushioned us from the worst of the tech bust, while greater San Jose has struggled to cope with the loss of tens of thousands of technology jobs.
“We are doing better than the rest of the Bay Area, generally speaking,” says Bob Sakai, director of technology and trade for the Economic Development Alliance for Business. “But I don’t think we have anything to celebrate. We’re closely tied to San Jose and San Francisco, so we have to hope that the whole region recovers. But we’re fortunate to have Clorox and NUMMI — a lot of traditional-economy companies. And they haven’t been quite as hit as the other parts.”
In fact, the closer you get to San Jose, the worse off the East Bay’s economy becomes. Fremont’s tech-deep landscape has left it vulnerable to the bust, and last week, the tech firms Read-Rite and Lam Research announced that most of their employees would be forced to take a two-week leave at the end of the year. In at least the case of Read-Rite — and Lam isn’t talking — the leave is unpaid.
But up in Pleasanton, at the sprawling Hacienda Business Park, life is just fine. “Considering what’s happening in the rest of the Bay Area, we’re doing very well,” says James Paxson, the park’s general manager. “Office space vacancy is around 7.6 percent, which is not bad.”
The Adecco employment agency operates a huge outlet at Hacienda, and according to branch manager Gina Tallerico, demand for workers has constantly risen over the last two years, regardless of the bust. “We’re doing well,” she says. “Slow, steady, and consistent. The mortgage industry’s been our recent strength. In 2000, companies were coming for direct hire, but now they’re relying more on temporary hiring, because they’re more cautious. But overall, my business is growing.” When asked what sector has taken the hardest hit, Tallerico thought for a long time before finally replying, “The event planners. The companies that had the big parties, those luxury positions are gone.”
When a man can’t make a living throwing parties for geeks dripping with venture capital, what has the world come to? Event planners don’t exactly resonate as poster children for the ailing economy. But that’s how far our expectations have risen.
Or consider the recent labor skirmish at the Port of Oakland. In traditional recessions, job actions break out because managers try to slash wages and benefits; here, the union fought to ensure that the clerks who will oversee a new computerized freight-tracking network would be unionized and draw the same six-figure salary that other longshoremen make. It was a dispute that looked to the future, not one that desperately tried to hold onto meager, diminishing salaries from the past.
But much of this flew right by the national and Bay Area media, which was too busy penning gloomy stories about vanishing stock options and yuppies moving back to Connecticut. And that’s because as much as tech may be suffering, we’re also in a significant media recession. Think of the titles no longer with us: Upside and the Industry Standard; the Berkeley Daily Planet and the Urban View. Wired has dropped to half its former ad count, Salon is broke, and the San Francisco Chronicle bought out the contracts of several dozen reporters it had promised not to fire. Not only did media professionals lose work, so did the people most likely to be their friends: Web designers, public relations flacks, content providers — all those liberal arts majors who got that dream gig in Multimedia Gulch and filed for unemployment insurance eighteen months later. If you’re a reporter or editor these days, life simply looks worse than it is.
This distorted perspective may even lie at the heart of the media’s obsessive coverage of Oakland’s homicide rate. Yes, 108 murders in a year is a ghastly statistic, and much of the outrage has been driven by church mothers marching on City Hall. But in 1992, at the height of the crack epidemic, Oakland had 175 murders. Ten years ago, we had such catastrophes as the Bosn’s Locker massacre, in which two men sprayed a bar with submachine gun fire and killed three people, just to send a message to a man who wasn’t even in the room. But the Chron barely noticed that murder epidemic.
The truth is, Oakland is doing a lot better than it once was. Perhaps reporters and editors at the Chronicle are so filled with their own economic anxiety that they’re latching onto any story that reflects it.
If they want a truly depressing story, here it is: the California underclass is about to get kneecapped. The state depends on taxing the rich, and the rich felt the brunt of the economic downturn. So the state has no choice but to slash health and social programs on a scale we’ve never seen before — just in time for millions of welfare recipients to get kicked off the dole.
Once upon a time, state and county budgets chugged along at a pretty steady clip, regardless of economic performance. Because property taxes played such a central role in California’s revenue stream, and property values were stable from year to year, county bean counters always had a reliable source of funds for local schools and social programs. Then along came Proposition 13, and county revenue dried up. A desperate Sacramento tried to make up the difference with income and sales taxes, but these funds are directly tied to economic performance; when the economy tanks, so do social programs, school budgets, and inner-city health-care clinics.
Fast forward to today — in particular, the disproportionate beating that stock market investors started taking after the NASDAQ crash of April 2000 — and you see part of the reason that California’s budget is in such bad shape. Property taxes aren’t growing, and the state’s other tax mainstays are so reliant upon the fortunes of the wealthy that they overexaggerate the economic cycle’s impact on state revenues. According to the California Department of Finance, revenue from taxpayers who make more than $1 million dropped a remarkable 47 percent in 2001, and capital gains plunged from almost $120 billion 2000 to under $50 billion last year. That’s a huge decline in revenues for a state whose unemployment rate only has risen from 4.9 percent to 6.3 percent in the last two years.
So while 2001 and 2002 were the years that the private sector took its lumps, 2003 will be the year the other shoe drops, and the public sector grinds to a terrible halt. “The economy slowed down two years ago, and we’re feeling the effects now, because people don’t pay their taxes immediately,” Henton says.
But unlike the last recession, there’s much less left to cut. During the hard years of the early and mid-’90s, Alameda County slashed its social infrastructure right to the bone; the North County jail was closed down, county social workers were laid off, and health-care services at Highland Hospital and county clinics were decimated.
There are plenty of ways California can avoid such crises when the economy heads south. How about saving most capital spending for when times are good, or socking away cash for social programs during the hard times? Or getting rid of the absurd rule that requires two-thirds of the state legislature to sign off on the budget? We could even go to a biennial budget and avoid balancing the state’s books in election years — during which state officials are too terrified to make tough decisions. But we’re nowhere close to having such common sense. Get this: Governor Gray Davis just announced that his new budget director will be Steve Peace, the former state Senator who wrote the electricity deregulation bill — the same bill that gave us rolling blackouts and cost us $9 billion in taxpayer funds. In short, the man most responsible for the state budget deficit is now in charge of saving us from his own stupidity.
California’s safety net will unravel at a particularly unfortunate moment. Welfare reform is finally going to pull the trigger on millions of indigent mothers next week, as they simultaneously reach the five-year lifetime aid limit. Meanwhile, thanks to years of corruption and incompetence, the school districts of Emeryville, Berkeley, and Oakland are swamped with millions in debt; Oakland’s $80-plus million budget deficit is now the largest in the state’s history, and the district’s 54,000 students — among the poorest children in the East Bay — will have virtually no chance of ever developing the skills they need to make something of their lives. We have an underclass absolutely dependent on a public sector that is about to fail them in every way. “We’re down to the bare bone,” says boona cheema, executive director of the homeless service provider Building Opportunities for Self-Sufficiency. “There’s nothing left to cut without killing people.”
Last month, two Alameda County paramedics tried to drop off a mentally ill man at the John George psychiatric hospital — the only significant mental health facility left in the county. Hospital officials refused to accept the patient, citing the transparently fraudulent reason that he was under the legal care of someone in Solano County. The paramedics heroically insisted that turning away such an obviously unstable man was unacceptable, and later claimed that when they turned to leave the patient in the lobby, hospital staff actually barred the doors and called security. The paramedics called the county sheriffs and tried to have hospital staff arrested for kidnapping. This incident was played in the media as a funny little story, but it’s really far more than that; it’s actually a sign of how frayed the county’s health infrastructure has become. And the budget axe hasn’t even swung yet.
The people dependent upon this system can’t go back to grad school when business goes south. They don’t have stock options — they don’t have many options, period.
Now that’s something to whine about.